Appraising for consumer Resale Part 2

[EDITOR’S NOTE: This is the second in a two-part question-and-answer column on consumer resale appraising. The first, (see JCK, March 1997, pp. 130-131) covered basic considerations. This column deals with broader but equally as important issues.]

A potential client indicates he is in a temporary financial bind and requests your opinion on the “fair resale value” of some jewelry. He is confident the “value” of some, or all, of his items will be sufficient to handle his current financial emergency. He also indicates one or more of the items belonged to his recently departed mother and that he might need “value for estate tax.”

He presents the following items:

  • A solitaire “engagement” ring containing one round brilliant-cut pink diamond.

  • A fine and heavy ruby bracelet.

  • A uniform cultured pearl necklace.

  • A diamond-encrusted, handmade Art Deco ring.

Is it OK to do the appraisal and make an offer to buy the items? If you provide the appraisal, what additional information might the client need besides the amount they are worth when selling to a retail jeweler?

Whether to offer to buy the items is a personal business decision. The ethics codes of most appraisal societies require disclosure, in the report, of any “interest the appraiser had in the property being appraised.” This is easily done by stating in the report “We are in the business of buying and selling such items,” and “We did disclose to the client that we were interested in purchasing the (item).” If you actually buy any of the items that should certainly be disclosed in the appraisal report, just as you would state you were the seller in insurance appraisals.

The first part of this Q&A included a sample Report Summary Page that lays out the basic bottom line for a consumer resale client. It demonstrates the manner in which you would provide information on the following subjects:

  • The most viable resale markets and the probable time frame for such efforts.

  • What customers might be able to get as a loan if they pawned the item(s).

  • The amount they might wish to insure the items for while attempting to sell them.

The table that accompanied that article also provided single net dollar amounts as a representation of the probable range of prices achievable in such unpredictable market scenarios.

Additional relevant data

The sample Assignment Data Summary page included with this Q&A provides clients with the information that forms the basis of the appraiser’s estimates, as well as additional information that could be important to their decision-making process. Providing this information to clients might be optional, but they should at least be made aware of its existence.

Consumer resale appraisals rank high in the type of appraisal assignments that are poorly performed and that speak to missed opportunities for “positioning” ourselves as uniquely professional. Clients might have no interest and decide they would like a simple description and your best opinion of what retailers might offer for the property. Even so, it’s worth the effort to include the parameters of your services in a consumer information brochure.

The single net dollar amounts provided in a report summary make for easy comparison of client options. However, the probable range of gross selling prices along with the range of possible fees to be deducted give clients the information they would need for a more informed and considered decision. Providing them with this data also demonstrates to the clients, and their friends, that you offer unique professional services. It would be a reasonable assumption that this level of professionalism extends to your selling practices.

The data summary page also is an ideal vehicle for providing comparative information on the clients’ basis in the property and on amounts they might want to consider as reserve prices. The former is critical in considering capital gains taxes that might result from the sale, while the latter is especially important with items that have an intrinsic worth of component parts that could be sold for scrap.

Tax considerations

Besides the potential for capital gains tax liability, there are a couple of other issues to keep in mind:

Estate and probate taxes: Actions taken with inherited properties can have consequences in relation to federal estate tax and to state probate or inheritance tax matters.

If clients also seek an appraisal for these uses, it should be separate and performed in accordance with relevant federal and/or state regulations. If you also buy any of the items, it’s usually best to refer the clients to another appraiser for related tax appraisals. Why expose your clients or yourself to the possible charge that you were biased toward low values – especially in a situation where it would appear the clients also would want low values.

You might also suggest the clients talk to their tax adviser about the real possibility the IRS might consider any amounts achieved in the sale of the property to be “best evidence” of actual Fair Market Value. For this reason, it’s advisable to annotate the report with your opinion as to which of the markets is “most typical” for the sale of such items when sold in a manner that is not considered under duress (a “forced sale”).

Donation as an option: If the clients don’t need cash immediately, they might want to talk to their tax adviser about the possibility of donating some or all of the items to a related institution for a charitable contribution income tax deduction. They should be cautioned the resale appraisal report and the values it contains are not proper for use in any such tax claim. The Internal Revenue Code has considerably different requirements for a Qualified Appraisal to be submitted for donation tax claims.

Consumer Resale Appraisal – Assignment Data Summary

Gross ranges in thousands of dollars for pawn/loan & three resale marketsas of Feb. 3, 1997 ©1997 Elly Rosen

[NOTE: The table below contains this appraiser’s best estimate of the typical range of gross prices that might be achieved in the markets you requested for this appraisal report. It is difficult to predict what prices might be achieved in such resale scenarios and the probable ranges are provided to for your consideration. Also provided below is the data related to typical selling fees that you might incur in your resale efforts. All of this data served as the basis for the singular net dollar amounts provided for your convenience on the Report Summary Page (see JCK, March 1997) of this appraisal.]

Year Basis1 Reserve3 Pawn loan4 (varies by state) To the trade Auction Consignment5 Replacement6
Pink diamond ’89 $9,000 $2,500 $2.0-3.0 $2.7-4.3 $6.0-16.0 $10.0-15.0 $16,000
Ruby bracelet ’86 $7,000 2,000 0.8-1.5 2.0-3.0 4.0-8.0 6.7-13.5 9,000
Pearl choker ’88 $2,500 1,100 0.4-1.0 1.0-1.8 2.0-6.0 3.5-7.5 5,000
Art Deco ring ’922 $3,500 1,800 0.7-1.5 2.0-5.0 8.0-18.0 10.0-17.5 15,000
Totals $22,000 $7,400 $3.9-7.0 $7.7-14.1 $20.0-48.0 $30.2-53.5 $45,000

Intended use Loan Resale Resale Resale Ins.&Bench6
Time for Sale: 1-3 Days 1-4 Weeks 3-6 months 6-12 months
Fees to Deduct: None None 10% typical 10%-40% range (add sales tax)

1-2“Basis” is your adjusted basis in the property. Profits received from the sale of the item over this amount might be subject to federal and/or state capital gains tax. For the first three items it is your actual cost; provided as an additional benchmark to assist in deliberation of your options. For the “Art Deco Ring” it is the amount which was stated as the Fair Market Value (FMV) by the estate from which you inherited the item.

3“Reserve” is this appraiser’s opinion of the lowest price that you should accept for the sale of this item as being fair and reasonable. If you do not receive any offers of at least this amount you might want to give additional consideration to pawning the item as a temporary measure. [In the case of items with considerable precious metal content, it might represent the scrap bullion value based on spot trading prices as of the date of this table. Scrap price is readily available to you at most precious metals dealers.]

4“Pawn loan” is the range of gross amounts you might borrow against the item. This is explained further in the report Preface pages and in the Report Summary Page.

5“Trade,” “Auction” and Consign” are the range of gross prices you might achieve when selling into these markets. These are explained further in the report Preface pages and in the Report Summary Page.

6“Replacement” is the amount for which you might want to insure the items while attempting to sell them. These amounts also serve as a retail replacement benchmark as is explained in more detail in the report Preface and in the Report Summary Page.

Elly Rosen is a freelance appraisal principles consultant in Brooklyn, N.Y. His new Appraisal Information Services OnLine NetWork offers subscriptions to appraisers for appraisal consulting, the Appraisal Reporter (appraisal principles newsletter) and gemological appraisal supplement, and a Glossary of Appraisal Terminology. He also offers appraisal report “boiler-plate” and formats for various types of appraisals, an audiotape lecture series on appraisal issues and a glossary of professional appraisal terminology.

Rosen was one of the developers and instructors of the Certified Appraiser of Personal Property program from 1982 to 1993. He also is a member of the Jewelers Vigilance Committee’s Appraisal Task Force and was one of the principal developers of the new JVC Guidelines for Insurance Replacement Estimates.

Contact him at (718) 692-1975 or via e-mail to ais@polygon.net.